CANADA FX DEBT-C$ weakens as central bank policy direction sets tone

Thu Feb 26, 2015 5:02pm EST
 
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(Updates with fresh comment, details, closing figures)
    * Canadian dollar at C$1.2527 or 79.83 U.S. cents
    * Bond prices lower across the maturity curve

    By Solarina Ho
    TORONTO, Feb 26 (Reuters) - The Canadian dollar softened
against its U.S. counterpart on Thursday as weaker crude oil
prices weighed and investor attention focused on the monetary
policy directions of the U.S. and Canadian central banks.
    A slew of U.S. data including inflation data and
stronger-than-expected durable goods orders in January also
helped strengthen the greenback against a basket of currencies
, offsetting Canadian inflation figures that topped
forecasts.
    The U.S. data, along with comments from Fed officials on
Thursday, supported bets the U.S. central bank will raise
interest rates sometime in the middle of the year.
    The Canadian dollar ended the North American
session at C$1.2527 to the greenback, or 79.83 U.S. cents,
weaker than Wednesday's close of C$1.2423, or 80.50 U.S. cents.
    USForex currency strategist Lennon Sweeting said the last
couple of sessions have been an opportunity for investors to
take profit on long U.S. dollar positions. 
    "Now what we're seeing is those same participants reloading
those positions at lower levels with the overall theme being for
U.S. dollar strength over the next few months," said Sweeting.
    "Inflation will be really the metric that's the question
mark: how central banks are going to handle falling deflation as
a result of these lower oil prices."
    The price of crude , a major Canadian export,
fell on the latest jump in U.S. crude stockpiles, which hit a
seasonal record high for the seventh week. 
    In Canada, the annualized rate of inflation dropped to 1
percent last month from 1.5 percent in December, but was still
higher than the expected decline to 0.7 percent. The results
supported the growing view that the Bank of Canada will not cut
interest rates again next week as had been previously widely
expected. 
    Markets have struggled to interpret the Bank of Canada, and
before Governor Stephen Poloz's comments they had priced in a 70
percent or more chance of another rate cut next week. That has
since dropped to less than 25 percent. 
    Canadian government bond prices were lower across the
maturity curve, with the two-year down 7 Canadian
cents to yield 0.507 percent and the benchmark 10-year
 down 27 Canadian cents to yield 1.354 percent.

 (Editing by Nick Zieminski and James Dalgleish)